A contractor purchased a truck for $45,000. After 3 years using straight-line depreciation with no salvage value over a 5-year life, the truck is sold for $20,000. What is the gain or loss on the sale?
Correct Answer
B) $2,000 gain
Annual depreciation = $45,000 ÷ 5 = $9,000. After 3 years, accumulated depreciation = $27,000. Book value = $45,000 - $27,000 = $18,000. Gain on sale = $20,000 - $18,000 = $2,000 gain
Why This Is the Correct Answer
Annual depreciation = $45,000 ÷ 5 = $9,000. After 3 years, accumulated depreciation = $27,000. Book value = $45,000 - $27,000 = $18,000. Gain on sale = $20,000 - $18,000 = $2,000 gain
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